#1
Which of the following best defines the law of supply?
The higher the price, the higher the quantity supplied
ExplanationLaw of supply states that as price increases, quantity supplied also increases.
#2
In the context of supply, what does it mean when the market is in a state of equilibrium?
The quantity demanded equals the quantity supplied.
ExplanationMarket equilibrium occurs when the quantity demanded matches the quantity supplied.
#3
According to the law of supply, how does an increase in production costs generally affect the supply of a good or service?
It causes a decrease in supply.
ExplanationHigher production costs, as per the law of supply, lead to a reduction in the supply of a good or service.
#4
What is the role of speculation in influencing the supply of goods and services in the market?
Speculation can lead to sudden shifts in supply due to changes in market expectations.
ExplanationSpeculation can cause abrupt changes in supply as a result of shifts in market expectations.
#5
According to the law of supply, what typically happens to the quantity supplied as the price of a good or service decreases?
Quantity supplied decreases.
ExplanationAs per the law of supply, a decrease in the price of a good or service leads to a reduction in the quantity supplied.
#6
What is the primary determinant of the quantity supplied according to the law of supply?
Price of the good or service
ExplanationPrice is the key factor influencing the quantity supplied, as per the law of supply.
#7
In economics, what does the term 'elasticity of supply' measure?
Responsiveness of quantity supplied to a change in price
ExplanationElasticity of supply gauges how quantity supplied reacts to price changes in the market.
#8
What is the difference between a change in quantity supplied and a change in supply?
A change in quantity supplied is a movement along the supply curve, while a change in supply shifts the entire curve.
ExplanationQuantity supplied change involves movement along the curve, while supply change shifts the entire curve.
#9
What is the concept of 'opportunity cost' in the context of supply decisions?
The value of the next best alternative forgone
ExplanationOpportunity cost in supply decisions represents the value of the next best alternative that is sacrificed.
#10
What is the 'law of diminishing marginal returns' in the context of production?
As the quantity of a variable input increases, the marginal product eventually declines.
ExplanationThe law of diminishing marginal returns asserts that, with increased variable input, marginal product eventually decreases.
#11
How does the concept of 'price elasticity of supply' relate to the responsiveness of quantity supplied to a change in price?
High price elasticity indicates a high responsiveness of quantity supplied to a change in price.
ExplanationPrice elasticity of supply signifies the degree of responsiveness of quantity supplied, with high elasticity indicating a significant response to price changes.
#12
What is a 'shift' in the supply curve typically caused by?
Non-price determinants
ExplanationShifts in the supply curve result from factors other than price, known as non-price determinants.
#13
According to the law of diminishing marginal returns, what happens as more units of a variable input are added to a fixed input in the production process?
Marginal product diminishes
ExplanationThe law of diminishing marginal returns asserts that adding variable input to a fixed input leads to a decline in marginal product.
#14
How does technological advancement typically influence the supply of goods and services in the market?
It decreases the cost of production, leading to an increase in supply.
ExplanationTechnological advancement lowers production costs, resulting in an augmented supply of goods and services.
#15
What role do expectations play in the determination of supply?
Producers' expectations about future prices can influence current supply decisions.
ExplanationExpectations of future prices held by producers impact their current supply decisions.
#16
What role do subsidies play in the context of supply?
Subsidies reduce production costs and increase supply.
ExplanationSubsidies lower production costs, leading to an augmented supply of goods and services.
#17
How does the concept of 'perfectly elastic supply' differ from 'perfectly inelastic supply'?
Perfectly elastic supply means any price change results in a large quantity supplied, while perfectly inelastic supply implies no change in quantity supplied regardless of price.
ExplanationPerfectly elastic supply responds dramatically to price changes, while perfectly inelastic supply remains constant despite price fluctuations.